Essays in Local Public Finance

The first essay, "Producers and Predators in a Multiple Community Setting" investigates how different ways of organizing the provision of local policing services in a multi-community setting affect the level of criminal activity, the spatial distribution of the population, the cost of policing, and overall productivity across all communities. Our analysis shows that if individual local governments are boundedly rational, in the sense that they do not anticipate the effects of their own defense activity on the equilibrium predator/producer ratio and distribution of producer activity, then competition among local governments never achieves a first-best outcome and sometimes yields a lower consumption per capita in equilibrium than would be achieved if there were no local governments and each agent who chose to be a producer also chose his own level of defense. The second essay, "Discriminatory Taxation in a Model of Local Community Competition," analyzes tax competition for new economic resources among local communities within the context of a dynamic, overlapping generations model. We show that in a simple model of discriminatory tax competition, allowing communities to compete for new entrants via the use of entry bonuses and entry taxes does not produce a 'race to the bottom,' does not reduce overall efficiency, and can prevent the economy from getting stuck in an inefficient allocation of resources across communities. The third essay, "A Note on the Effects of Tax Increment Financing on the Path of Land Development," shows that TIFs introduce distortions in the early use of property even as they reduce tax distortions on later use of property. The net effect of a TIF on the dynamic efficiency of land use depends on the magnitude of the TIF subsidy

Public Finance in China since the Late Qing Dynasty

How is "public finance" organized in China? Is China’s public finance system different from that of other countries? Can we detect features which link today’s system to the past?Public finance refers to more than annual state budgets and constitutional procedures. It includes foreign debt, state monopolies or monetary policies, all of which played a crucial role in China’s public finance during the last hundred years. A purely legislative definition obscures the fact that changes in public finance have contributed to the collapse of political regimes such as Imperial China (1911), Republican China (1927), and KMT-China (1945), as well engendered regime changes in 1949, 1961 and 1978. From a more comprehensive economic perspective public finance in China encompasses institutions, organizations and policies.public finance;China;KMT-China;imperial China;republican China

Separability and public finance

In a second best environment, the optimal policy choice sometimes follows the first best rules. This note lays down the information structure and separability assumptions under which this property holds in a variety of setups.separability, second best optimality, indirect taxes, Samuelson rule, Pigovian taxation

Estimate of revenues from the value added tax in the Republic of Croatia

This Occasional Paper is part of a research project undertaken by the Institute of Public Finance and financed by the Ministry of Finance of the Republic of Croatia. The research project and the presented paper are published in Croatian in the Institute’s journal “Financijska praksa”, Volume 20, Number 2 (August 1996). Part I of the paper is written by Danijela Kuliš (Institute of Public Finance, Zagreb), and Part II is written by Žarko Miljenović (then, State Bureau for Macroeconomic Analyses and Forecasts, Zagreb; and now Zagrebačka banka, Zagreb). The project’s lead researcher was Dr. Katarina Ott (Institute of Public Finance, Zagreb)

Comparison of the Tax Structure in Central European and European Union Countries: Tax Reform Goals and the Current Situation

The paper provides an analyses of the public finance reform in Central European Countries during the economic transition. The process of reforming public finance (covering both tax and expenditure reforms) is a long lasting one with specific features in individual countries. Nevertheless, some common, general features to the restructuring of CEC public finances can be identified.economic transition, public finance, Central Europe, taxation

Public finance in adjustment programs

This paper reviews the experience with public finance issues under adjustment programs. This experience shows that fiscal changes are often triggered by budget and balance of payment crises. As a result, short-term considerations have dominated the policy measures introduced. Traditional stabilization policies usually emphasize measures aimed at reducing aggregate demand. On the fiscal side, this has implied cutbacks in public expenditures. There is, however, growing recognition of the need for more growth oriented adjustment programs, which entail a more comprehensive and durable approach to fiscal reform and therefore require a medium-term perspective. Countries committed to fundamental reform of fiscal and other key policy areas should be able to avail themselves of external financial support that lasts long enough for them to initiate and sustain the change process. They must strike a balance between stabilization and adjustment.Economic Stabilization,Environmental Economics&Policies,Public Sector Economics&Finance,National Governance,Banks&Banking Reform

Political Economics and Public Finance

Observed fiscal policy varies greatly across time and countries. How can we explain this variation across time and countries? This paper surveys the recent literature that has tried to answer this question. We adopt a unified approach in portraying public policy as the equilibrium outcome of an explicitly specified political process. We divide the material into three parts. In Part I, we focus on median-voter equilibria that apply to policy issues where disagreement between voters is likely to be one-dimensional. We thus study the general redistributive programs which are typical of the modern welfare state: redistribution between rich and poor, young and old, employed and unemployed, resident of different regions, and labor and capital. In Part II we study special interest politics. Here the policy problem is multi-dimensional and we focus on specific political mechanisms: we study legislative bargaining, lobbying, and electoral competition, as well as the possible interactions between these different forms of political activity. Finally, Part III deals with a set of questions that can be brought under the label of comparative politics. Here we deal with policy choice under alternative political constitutions; we model the rationale for separation of powers and contrast the stylized features of congressional and parliamentary political systems, focusing on their implications for rent extraction by politicians, redistribution and public goods provision.

Public finance and economic development

This paper reports on tests of alternative hypotheses as to the effects of a budget deficit, examines the influence of the size of the government on economic growth, and investigates the impact of public investment on private investment, total investment, and economic growth. The findings have important implications for the developing countries. They show that budget deficits have adverse effects on the balance of payments as well as on domestic investment. It further appears that increases in government consumption adversely affect economic growth. Finally, increases in public investment not only crowd out private investment but tend to lower the efficiency of investment, with adverse effects on economic growth. The conclusions point to the need for reducing budget deficits in developing countries. They further favor lowering government consumption as well as public investment in these countries.Economic Stabilization,Economic Theory&Research,Environmental Economics&Policies,Macroeconomic Management,Achieving Shared Growth

Globalization and International Public Finance

This paper examines the effect of reduced transaction costs in the international trading of assets on the ability of governments to issue debt. We examine a model in which governments care about the welfare of their citizens, and thus are more inclined to default if a large proportion of their debt is held by foreigners. Reductions in transaction costs make it easier for domestic citizens to share risk by selling debt to foreigners. This may increase tendencies for governments to default, and thus raise their cost of credit and reduce welfare. We find that even in the absence of transaction costs, home bias in placement of government debt may persist, because in the presence of default risk the return on government debt is correlated with the tax burden required to pay the debt. Asset inequality may reduce this home bias, and by increasing foreign ownership, increase incentives for default. Finally, if foreign creditors are less risk averse than domestic creditors, there may be one equilibrium in which domestic creditors hold the asset and default risk is low, and another in which foreign creditors hold the asset and default risk is high.

Creating the fiscal administration more efficient by improving the informatic system

In the process of developing the informational society, the existence of a functional informatics system of the Economy and Finances Ministry must be materialized in the improving the electronic communication systems. The development of utilization of the information technology in the public finance domain from Romania, wants to support in an efficient an flexible manner the totality of functions of the public finance system also reaching a high level of compatibility with the similar informatics systems utilized in the European Union member states.informational society, electronic communication system, public finance system